Quickly calulating fed taxes by hand - tax experts ?

[Russell]

So, I spent some time today trying to figure out just how the federal taxes are calculated. I think I figured it out if you're just taking the standard deduction and doing the basic 1040.

Understand, I'm a computer guy so take what I say here with a grain of salt. Here's a simple senario, tell me if I'm doing something obviously incorrect:

Married filing jointly:

Total salaries: $75000
Total 401k: $2000
AGI: (Total Salaries - 401k) = $73000

Standard deduction: $10000
Taxable income: (AGI - Standard deduction) = 63000

This puts us in the federal "$8180 + 25% over 59400" bracket (2005 rates from IRS website )

So,

63000-59400=3600
3600 x .25 = 900
900 + 8180 = 9980 <<--- Taxes owed

Then you can see (from your pay stubs for example) how much taxes you've already paid and how much you will pay by the end of the year and substract that from 9980 to see if you're over or under.

Questions for the experts:

1. How did I do ?

2. Did I use the terms (AGI, Taxable income etc correctly) ?

3. How is the interest (for e.g. ING) calculated ? So say I earn $500 interest in 2005.

4. Anyone know how to do something like this for CA state taxes ?

Thanks.

[marglo]

I don't know how you did but I am glad you mentioned this. I would like to do this and never knew how. We ALWAYS pay and we have about $15,000+ in deductions ...I do our taxes myself. Even though we have upped our withholding and have more than $15,000 in deductions we always have to pay! I would at least like to be able to estimate it before hand and be more prepared.

[Russell]

That's exactly what made me want to figure this out and I think its actually quite simple, at least for my simple situation (no business, no house, no funny deductions). We do our own taxes as well using TurboTax. We were doing quite well on our taxes when we had the house but this year we're going to have to owe quite a bit

Remember that the amount you owe (or get back as a tax refund) when you file taxes is simply the difference between the total taxes you already paid and the total taxes owed. Its quite simple but you'd be surprised how many people don't know this. So, the amount owed (or refunded) at the end of the year can be changed by simply changing your withholdings (on your W4 form). If you wanted to let the govt take the maximum amount out of your paychecks you could change your withholdings to 0. If you still end up owing you can further tell the employer to take out x amount from each paycheck on top of the 0. In the end you don't want to get a big refund or owe lots of money, a small refund is probably what's desireable for most.

Having said that, changing withholdings doesn't lower your taxes, deductions do. One of the biggest money savers is maxing out your 401K which lowers your AGI. For 2005 you're allowed up to $14k to be put away into your 401k, that's for each person earning income (check the IRS website if other limits apply). Yes your take home gets smaller but your taxes are lowered.

Give my calculations a try with your 2004 numbers to see if my calculations are pretty close. If they are, then plug in some numbers for 2005 and see where you end up. You'll need your paystubs to get some numbers for 2005. I created a Excel spreadsheet so its quite simple to play with the numbers. Comparing my 2003/2004 numbers I'm pretty close to what we owed in those two years so I'm guessing my calcs are fairly close.

Goodluck.